Part 5 of 10 in our series on the real estate pain points costing small and mid-size businesses money

If you’re paying common area maintenance charges without seeing the details, you may be paying more than you should!

Common area maintenance charges – usually referred to as CAM – are intended to reimburse a landlord for a tenant’s share of certain costs associated with operating and maintaining a property.

That sounds straightforward. In practice, it isn’t!

For many tenants, CAM appears as a single number on a monthly statement or year-end reconciliation. The invoice gets paid, the expense gets booked, and no one asks what is actually included.

That can be an expensive habit.

The problem isn’t CAM. It’s the lack of visibility.

CAM charges can include legitimate expenses such as landscaping, snow removal, parking lot maintenance, common-area utilities, building repairs, property management fees, and other shared operating costs. However, the issue is that tenants often have very little visibility into how those charges were calculated.

Depending on the lease, a tenant may be entitled to receive an annual reconciliation, review supporting documentation, and in some cases conduct a formal audit. Yet many businesses never exercise those rights. They simply assume the landlord’s calculation is correct.

Where overcharges can occur

CAM overcharges are not always intentional. They can result from accounting errors, inconsistent classifications, or expenses being allocated incorrectly.

• expenses that should be excluded under the lease;
• capital expenditures being passed through improperly or too quickly;
• management or administrative fees exceeding negotiated limits;
• costs associated with another tenant being allocated across the property;
• repairs that are actually the landlord’s responsibility;
• incorrect calculation of a tenant’s proportionate share;
• expenses that are duplicated or charged in more than one category; and
• year-over-year increases that exceed negotiated caps.

Individually, some of these amounts may not look significant. Over several years, they can add up.

Your lease may give you more rights than you realize

Many commercial leases contain provisions allowing tenants to review or audit operating expense statements. But those rights often come with conditions, some common conditions are:

• There may be a limited timeframe by which to challenge a reconciliation.
• The lease may require a narrowly defined written notice.
• The audit may need to be conducted by a qualified accountant.
• Some leases restrict how often an audit can occur or who is permitted to conduct it.

In other words, having an audit right is not the same as using it. The language matters!

Start with the reconciliation

You do not necessarily need to launch a formal audit every year. A good first step is simply to request the annual CAM reconciliation and supporting breakdown. Look at what changed from the prior year. Ask questions about large increases. Compare the categories being charged against what the lease actually allows. Then look at the math.

That basic review alone can uncover mistakes.

One of the easiest cost leaks to miss

Businesses often spend a great deal of time negotiating base rent and relatively little time reviewing operating expenses after the lease is signed. That is backwards.

Occupancy cost is more than rent! CAM, taxes, insurance, utilities, repairs, and other pass-through expenses can materially affect the total cost of a lease. If those costs are not being monitored, a company may be losing money every year without realizing it.

And unlike many business expenses, this is one area where the lease may already give you the right to ask questions.

A simple place to start

If you have never reviewed the itemized CAM charges for your building, request the most recent reconciliation. Then compare it with your lease. You may find that everything is correct. But you may also find something worth challenging.

Either way, you will know what you are paying for.

Up Next: Part 6 – The Lease Clause That Quietly Limits Your Flexibility